Whatever someone's vision for retirement, they have to consider their current home. Some retirees downsize from a house that was once full of kids. Others want to stay forever, if possible, where they've lived for decades. Which option is right?

Key Takeaways

  • Selling while the market is healthy could produce a needed influx of funds.
  • Moving even a small distance could lower property taxes or put a retiree closer to such newly desirable amenities as a senior center.
  • If a retiree's equity is low, they may lower their monthly housing costs by selling and then renting.

The Pros of Selling

There are plenty of reasons to put a house up for sale. Many people today go into retirement without enough savings. If a retiree owns their home outright or has a lot of equity and the housing market is healthy, selling could produce the influx of funds their retirement accounts need.

Selling can also come with a tax break. “If you’ve lived in your home for the last two out of five years from the date of sale, you can exclude up to $250,000 of the capital gain from the sale of the house if you’re single. If you’re married, you can exclude up to $500,000,” adds Carlos Dias Jr., wealth manager at Excel Tax & Wealth Group in Lake Mary, Fla.

Ongoing costs are another consideration. Homes come with maintenance. The older your home, the more maintenance it’s likely to require. Was the home purchased originally to meet the needs of a big family? Are all of those extra rooms now only used when grown children or grandchildren visit? The larger the house, the more property taxes cost. Are crucial retirement funds being wasted on a large house? 

As one ages, a home might also have an essential feature that could suddenly become a real problem: stairs. Stairs can create mobility challenges for seniors, and expensive remodeling of a retiree's home might become unavoidable.

Was the home purchased originally to meet the needs of a big family? The larger the house, the more property taxes cost. Are retirement funds being wasted on a large house?

The perfect home probably also means something different to a retiree than it meant years before. One might have looked for a home in the best school district or near a workplace. Retirees likely have different priorities (even to the point of selling everything and relocating overseas). Moving even a small distance could lower property taxes or put a retiree closer to grandchildren or to such newly desirable amenities as a senior center.

Staying Put

After a home sale, the most likely next steps involve renting or buying a downsized home. Buyers can pay cash, but renters pay with a monthly steam of money they’ll never get back. Staying in one's home, even with all the expenses, may be cheaper in the long run than renting.

Much depends on equity. If a retiree's equity is low—or if they are nowhere near owning the home outright—they may reduce their payments by selling and then renting. Remember, too, that renting often means that all the maintenance and possibly some of the utilities are included in the rent.

On the other hand, if a home is appreciating in value, it might \be worth holding on to it. A realtor can give an opinion on the local housing market.

Finally, the non-financial reasons for staying may be strong. The sense of family inherent in a home after years of raising children can loom large in how one wants to live in retirement. There’s nothing wrong with that, providing the financial resources are there.

“In many cases, it makes financial sense for retirees to downsize as it eliminates maintenance costs and higher rent or mortgage payments,” says Matt Cosgriff, a certified financial planner and retirement consultant at BerganKDV. “That’s a big plus for retirees who are now relying on their retirement assets to support their spending.

"The decision, however, is not always an easy one due to the fact that many retirees have years, if not decades, of memories tied up in their home. To help overcome this hurdle it is important for retirees to focus on the positives of downsizing, which include more time to be able to spend with loved ones and a lower monthly mortgage or rent payment.”

The Bottom Line

When it comes to a home, retirement planning depends not on a single answer but on an individual and unique financial picture. Find a trusted financial advisor/planner who will know the questions to ask and help you think through the issues and do the math.